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Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C

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Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Updating the Intercarrier Compensation Regime to ) WC Docket No. 18-155 Eliminate Access Arbitrage ) ______________________________________________________________________________ REPLY COMMENTS OF AT&T ______________________________________________________________________________ Keith M. Krom Gary L. Phillips David L. Lawson Attorneys For: AT&T Inc. 1120 20th Street NW Suite 1000 Washington, D.C. 20036 202-463-4148 August 3, 2018 TABLE OF CONTENTS Page INTRODUCTION ……………………………………………………………..……… 1 I. HOLDING ACCESS STIMULATING LECs FINANCIALLY RESPONSIBLE FOR THE COSTS OF DELIVERING ACCESS STIMULATION TRAFFIC WILL CURTAIL ACCESS STIMULATION ABUSE …………………..………. 3 II. THE COMMISSION HAS ALREADY CORRECTLY DETERMINED THAT ACCESS STIMULATION IS A “WASTEFUL ARBITRAGE SCHEME” THAT HARMS CONSUMERS AND COMPETITION, AND THERE IS NO BASIS FOR RECONSIDERING THAT CONCLUSION ……………………..………… 6 III. A DIRECT CONNECT REQUIREMENT, OUTSIDE OF THE ACCESS STIMULATION SCENARIO, WILL CURTAIL SWITCHED ACCESS STIMULATION ARBITRAGE ……………………………………….…………. 11 IV. SOME CLECs – AND NOT AT&T – HAVE ACTED INCONSISTENTLY WITH THE COMMISSION’S RULES AND ORDERS ………………………… 14 CONCLUSION ………………………………………………………………………. 15 i Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Updating the Intercarrier Compensation Regime to ) WC Docket No. 18-155 Eliminate Access Arbitrage ) REPLY COMMENTS OF AT&T Pursuant to the Commission’s Public Notice, dated July 2, 2018, in the above-captioned proceeding,1 AT&T Services, Inc. (“AT&T”) submits these reply comments. INTRODUCTION The comments filed on July 20 provide near consensus that access stimulation arbitrage is rampant and continues to harm consumers. Indeed, two Centralized Equal Access (“CEA”) service providers – service providers that the NPRM identifies as potentially linked to much of the current access stimulation arbitrage2 – have gone so far as to ask that the practice of access stimulation be prohibited.3 The only parties that oppose the Commission taking any action on 1 Public Notice, Wireline Competition Bureau Announces Comment Dates For NPRM On Updating The Intercarrier Compensation Regime To Eliminate Access Arbitrage (“NPRM”), WC Docket No 18-155 (July 2, 2018). 2 The NPRM notes that recent complaint activity suggests that much of the post-USF/ICC Transformation Order access arbitrage activity specifically involves LECs that use centralized equal access (CEA) providers to connect to IXCs. NPRM, ¶ 7. 3 See Comments of Iowa Network Services, Inc. d/b/a Aureon Network Services (INS) at 4-8; Comments of South Dakota Network, LLC., at 3 (characterizing access stimulation as an ‘unlawful’ and an ‘unjust and unreasonable practice.’). While a stunning recommendation, the ‘devil is in the details.’ AT&T agrees that the most effective solution to stop access stimulation arbitrage may be to ban the practice outright but that should not be tied to shoring up the CEAs’ monopoly. For example, INS conditions its request that access stimulation be banned on the Commission enforcing the CEA mandatory use requirements and enabling the CEA providers to raise their rates should they suffer any loss in traffic volumes. INS Comments at 9-19. As AT&T’s comments make clear, the mandatory use provisions are improper and should be rejected. 1 access stimulation are the access stimulating local exchange carriers (“LECs”) who claim, not - surprisingly, access stimulation is beneficial. These statements of self-preservation do nothing to override the findings of harm the Commission reached in 2011, and upheld by the courts,4 and clearly do not change the fact that billions of minutes-of-use and millions of dollars continue to be wasted on access traffic pumping schemes.5 Accordingly, AT&T urges the Commission proceed with its proposal to place the financial responsibility on an access-stimulating LEC so it, rather than interexchange carriers (IXCs), pays for the delivery of calls to its end office or the functional equivalent. This part of the rule would reduce the current incentive to locate the equipment used to provide conference and chat services at remote locations for no reason other than to bill improper intercarrier compensation. The Commission also should make clear that CEA service providers are CLECs for purposes of the Commission’s traffic pumping rules. However, the Commission should not allow the access stimulating LEC a free pass by being able to make the IXCs responsible for all the additional costs of establishing direct connections and the delivery of the access stimulation traffic. Such a requirement will not do anything to stop the arbitrage abuse. Additionally, AT&T disagrees with those commenters that argue the Commission should confine its reforms to just access stimulation. The NPRM appropriately raises concerns 4 Connect America Fund, et al., 26 FCC Rcd. 17663, ¶ 663 (2011) (“Transformation Order”) (“Access stimulation imposes undue costs on consumers, inefficiently diverting capital away from more productive uses such as broadband deployment.”); see also Notes 21-28 below. 5 As AT&T indicated in its Comments (p. 10), AT&T estimates the industry and consumers continue to be burdened by wasteful schemes totaling 8.2 billion minutes-of-use annually, with a resulting cost of almost $80 million annually – notwithstanding that more than six years have passed since Transformation Order reforms and the transition to bill-and-keep on terminating access is nearly complete. The claim that large interexchange carriers like Verizon and AT&T have the financial wherewithal to eat these otherwise illegitimate costs would be laughable if it were not part of a claimed expert economic analysis trying to prove the overriding benefits of arbitrage. This analysis is without merit. Access stimulation harms consumers and investments. Ill-gotten gains, even if used for good purposes (which is not the case here) – are still ill-gotten gains. See Transformation Order, ¶¶ 662-64; id. ¶ 666 & n.1098. 2 regarding other arbitrage schemes involving mileage pumping and daisy chaining. The Commission can and should act to end these arbitrage abuses. A direct connect requirement, similar to the one proposed by CenturyLink,6 would put an end to these non-access stimulation arbitrage schemes. I. HOLDING ACCESS STIMULATING LECs FINANCIALLY RESPONSIBLE FOR THE COSTS OF DELIVERING ACCESS STIMULATION TRAFFIC WILL CURTAIL ACCESS STIMULATION ABUSE. Many commenters join AT&T in supporting the first prong of the NPRM’s proposed rule – making access stimulating LECs responsible for the costs of the transport and delivery of access stimulation traffic to their end offices.7 By requiring the access stimulating LEC to bear the costs of transporting such calls from the IXC’s network to the LEC’s end office switch, the Commission not only would reduce the current incentive to locate the equipment used to provide conference and chat services at remote locations but also would appropriately assign the costs of transporting these types of calls to the access stimulating LEC, the conference or chat provider and/or the users of such services. Despite this general support for the first prong of the rule, there is not the same level of support for the second prong of the rule – which would allow the access stimulating LEC to avoid accepting financial responsibility for the delivery of the access stimulation traffic by allowing the IXC to direct connect with its network. In its Comments, AT&T argued that the second prong would enable access stimulating LECs to avoid entirely the impact of the 6 See Ex Parte Letter to Marlene H. Dortch, Secretary, FCC, from Timothy M. Boucher, CenturyLink, CC Docket No. 01-92, et. al., (May 21, 2018) (“CenturyLink Direct Connect Proposal”). 7 See AT&T Comments at 10-12; Comments of NCTA – The Internet & Television Association at 2; Comments of NTCA – The Rural Broadband Association at 2-3; Comments of ITTA – The Voice of America’s Broadband Providers at 1-2; Comments of Verizon 4-6; Comments of CenturyLink at 8-9. See also Comments of Peerless Network, Inc. and Affinity Network Inc. d/b/a ANI Networks at 10-11 (advocating that the rule be limited to apply to LECs subtending CEA networks). 3 Commission’s proposed reforms by: locating the POI where a direct connection is either not available or is only available at an exorbitant price (or by changing the location of its POI after the direct connection is built out); stranding IXC facilities after an IXC undertakes a costly build out by merely moving traffic; and incentivizing access stimulating LECs to locate the conference and chat equipment at even more remote (and costly to reach) locations.8 Several commenters echo these concerns. As CenturyLink describes, “a rule that requires the IXC to bear the burden to get traffic to the traffic-stimulating LEC, even if it can choose how, merely gives the IXC a choice of which wasteful way it wishes to spend resources.”9 Sprint also opposes the adoption of the second prong of the test, arguing that it “will not eliminate costly transport expenses associated with interconnection at a distant LEC end office” and “may be of only limited feasibility in rural areas where there are no competitive alternatives to the [access-stimulating] LEC’s preferred intermediate access partner.”10 Similarly, as ITTA commented, “[p]ermitting access-stimulating LECs to unilaterally decide to accept direct connections in lieu of financial responsibility threatens to introduce more loopholes that could undermine the NPRM’s intention of thwarting incentives to engage in arbitrage . ..”11 The Commission should therefore eliminate the second prong in the final rule it adopts unless the Commission takes the additional step of placing the 8 AT&T Comments at 13-14. 9 CenturyLink Comments at 7. 10 Comments of Sprint Corporation at 2. 11 ITTA Comments at 3. As ITTA notes, a key deficiency in the NPRM’s proposed second prong is that it allows the access-stimulating LEC to choose whether it will provision or require the IXC to provision the transport for the delivery of the access stimulation traffic.
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